DBG supports EBA’s approach to carve out entities that are subject to robust prudential regulation as well as such exempted or optionally excluded. While we generally consider the legal acts listed in Annex 1 of the Draft RTS to be providing an adequate prudential framework, we urge EBA to include Regulation (EU) No 909/2014 (CSDR) to avoid that CSDs (particularly those being authorized in accordance with Article 54 CSDR to provide banking-type ancillary services) are being identified as shadow banking entities. Like Regulation (EU) No. 648/2012 (EMIR), providing a comprehensive framework for CCPs, the CSDR constitutes a risk mitigating framework for CSDs that should be considered for the purpose of identified shadow banking entities.
We consider the criteria for identifying shadow banking entities outlined in Article 1 of the Draft RTS as generally clear and easy to implement. Nevertheless, we would like to point out that in contrast to the existing EBA guidelines on limits on exposures to shadow banking (EBA/GL/2015/20) the draft RTS do not explicitly exclude entities subject to consolidated prudential supervision from the definition of shadow banking entities.
As the requirements of the CRR as well as CRD shall be applied on a consolidated basis, we would consider entities not subject to prudential requirements on an individual level but subject to prudential requirements through consolidated supervision as equivalently subject to risk mitigating measures. Therefore, we seek clarification on whether entities captured through prudential consolidation should be considered as being supervised in accordance CRR / CRD and therefore not considered as shadow banking entities in accordance with Article 1 paragraph 2 of the Draft RTS.
DBG generally agrees with the selection and definition of banking services and activities to be considered banking services for the purpose of Article 394 paragraph 2 CRR. Notwithstanding our general consent, we would welcome further specification of the terms “maturity transformation”, “liquidity transformation”, “leverage” and “credit risk transfer” as missing specification might create uncertainties leading to diverging interpretation and therefore also inconsistent implementation of the Draft RTS
While the banking services and activities in scope as outlined in Article 2 lit. (a) of the Draft RTS are clear as they refer to well-known terms arising from CRD, Article 2 lit. (b) ibid. would benefit from further specification. At bottom, liquidity or maturity transformation occurs every time the liquidity respectively maturity of funds taken / incoming flows does not perfectly correspond to the liquidity / maturity of funds provided / outgoing flows. Similarly, leverage describes the relative size of an entity’s assets to its own funds, which per se does not necessarily pose a risk or indicates the provision of banking services. Rather, significant maturity or liquidity transformation as well as excessive leverage can pose a risk to financial stability. We therefore encourage EBA to further specify Article 2 lit. (b) of the Draft RTS as the missing definition of “maturity transformation”, “liquidity transformation”, “leverage” and “credit risk transfer” might create uncertainties leading to diverging interpretation and therefore also inconsistent implementation. In this context, EBA might want to consider limiting Article 2 lit. (b) of the Draft RTS to considerable maturity or liquidity transformation and excessive leverage.
As we agree that the existence of a risk mitigating framework is crucial for the identification of shadow banking entities, we clearly support exclusion of institutions authorised and supervised by a third country supervisory authority from being identified as shadow banking entities. Moreover, we welcome EBA’s approach not to (exclusively) refer to the formal recognition of equivalence subject to Article 391 CRR but rather refer to regulation and supervision based on the Basel core principles for effective banking supervision. We consider this approach to be fit-for-purpose.
Institutions will typically not perform own third country assessments on the implementation of the Basel core principles for effective banking supervision but rather rely on overviews provided by international standard setting institutions, e.g. the BIS overview of jurisdictional assessments . While institutions (depending on other applicable regulatory requirements) might verify authorisation of third country clients or customers, they might not do so for other types of counterparties. To avoid unclarities and to prevent institutions from being obliged to “verify” authorisation of third country institutions in any case, we suggest to slightly amend Article 3 paragraph 1 of the Draft RTS as follows:
“1. A third-country institution shall not be identified as a shadow banking entity where the institution has been authorised and is being supervised by a third-country supervisory authority that applies banking regulation and supervision based on at least the Basel core principles for effective banking supervision.”